Venture Corp

CIMB Research on 12 Sept 2012

OUR discussions with Venture suggest that business remains soft in Q3 2012, which we believe should not surprise the market. Rather, we would advise investors to look beyond its muted 2012, to a better 2013. The market, like us, had already lowered 2012 expectations after its Q2 2012 results. We make no changes to our FY2012-14 EPS or target price ($8.92, still at 14 times CY2013 PE, its five-year average). Maintain "outperform", with catalysts expected from a recovery in revenue and profits in FY2013.

Venture's customers remain guarded about H2's outlook because of the overall uncertain macro environment.

Through our recent conversations, we sense that business so far has been as muted as it was in Q2 2012. All product segments are soft with the exception of industrial products, whose sales are still growing at double digits.

According to Venture and our channel checks, maiden shipments to its new customer, Oclaro, could start in Q4 2012.

As Venture is working closely with the latter to kick-start more new projects, we believe maiden 12-month contributions from Oclaro (which had completed its acquisition of Opnext at end-July) will re-ignite its revenue and profit growth in FY2013. Venture has also started a new working relationship with VeriFone (acquired one of Venture's main customers, Hypercom, in H2 2011), shipping small volumes currently. It hopes to collaborate more closely with VeriFone, which has a much wider product reach than Hypercom.

Inventories may not drop in the near term due to the transfer of Oclaro programmes. However, Venture will focus on improving accounts receivable and accounts payable days, and cut inventories for non-Oclaro components.

OUTPERFORM